oversight

Forest Service: Actions Needed to Ensure That Salvage Sale Fund Is Adequately Managed

Published by the Government Accountability Office on 1997-09-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Ranking Minority Member,
                  Subcommittee on Interior and Related
                  Agencies, Committee on Appropriations,
                  House of Representatives

September 1997
                  FOREST SERVICE
                  Actions Needed to
                  Ensure That Salvage
                  Sale Fund Is
                  Adequately Managed




GAO/RCED-97-228
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Resources, Community, and
                   Economic Development Division

                   B-277210

                   September 26, 1997

                   The Honorable Sidney R. Yates
                   Ranking Minority Member
                   Subcommittee on Interior
                     and Related Agencies
                   Committee on Appropriations
                   House of Representatives

                   Dear Mr. Yates:

                   Sales of salvage timber—that is, timber that is insect-infested, dead,
                   damaged, or downed—represented nearly half of all the timber offered for
                   sale from the national forests in fiscal year 1996. Because nonsalvage
                   timber offered for sale has declined significantly in recent years, the
                   salvage sale volume offered is nearly double the proportion offered just 5
                   years ago. Because of this proportional increase, you asked us to obtain
                   information about the fund used to prepare and administer these
                   sales—the Salvage Sale Fund. In August 1996, we provided you with
                   information on how the fund is used, its status, and its current and
                   historical deposits and outlays.1 As agreed with your office, this second
                   report updates the status of the fund’s balance and provides a more
                   in-depth look at the management practices affecting the replenishment of
                   the fund. Our analysis is based on nationwide data from the Forest Service
                   and on a detailed review of the salvage sale programs at four national
                   forests and the Forest Service regions that administer them.2 (App. I
                   contains a more detailed discussion of our scope and methodology.)


                   After reaching a high of $247 million at the end of fiscal year 1993, the
Results in Brief   Salvage Sale Fund’s balance declined 25 percent to $186 million at the end
                   of fiscal year 1996. The decline occurred for a variety of reasons, and the
                   fund’s balance appears to be stabilizing in fiscal year 1997. If the Forest
                   Service’s estimates are correct, the Salvage Sale Fund’s balance will total
                   about $182 million at the end of fiscal year 1997, a balance the Forest
                   Service believes is sufficient to meet the estimated obligations for fiscal
                   year 1998.


                   1
                    Salvage Sale Fund’s Deposits and Outlays (GAO/RCED-96-240R, Aug. 22, 1996).
                   2
                    The forests reviewed were the Clearwater National Forest in Idaho, the Stanislaus National Forest in
                   California, the Umatilla National Forest in Oregon, and the Homochitto National Forest in Mississippi.
                   The regions reviewed were the Northern Region, the Pacific Southwest Region, the Pacific Northwest
                   Region, and the Southern Region.



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             Several management practices that affect the flow of salvage sale receipts
             into the Salvage Sale Fund need to be improved. Specifically, these
             practices include how regions and forests (1) establish priorities for
             distributing salvage timber sale receipts, (2) establish estimates of the
             costs to be recovered, (3) review salvage sale plans for completeness and
             accuracy, and (4) satisfactorily correct deficiencies.


             With a few exceptions, the volume of salvage timber the Forest Service
Background   has offered for sale has remained fairly constant over the years. However,
             as the green (or nonsalvage) timber sale program has decreased in size,
             the salvage sale program has increased as a percentage of the total volume
             offered for sale. For example, even though the actual salvage timber
             offered for sale declined from about 2.9 billion board feet to 1.9 billion
             board feet in 1990 through 1996, it actually increased as a percent of total
             timber offered for sale from about 26 percent to 48 percent during this
             same period.

             The National Forest Management Act of 1976, as amended (16 U.S.C.
             472a[h]), established the Salvage Sale Fund as a permanent appropriation,
             and the Congress appropriated $3 million in fiscal year 1977 to get it
             started. The act authorized the Secretary of Agriculture to require timber
             purchasers to make deposits into the Salvage Sale Fund as part of the
             payment for the timber. Such deposits are then available to replenish the
             fund and pay for the costs of preparing and administering future salvage
             sales. As appropriations to fund the overall timber program have
             decreased, the importance of the Salvage Sale Fund as a source of funding
             has increased. For example, in fiscal year 1990, moneys from the Salvage
             Sale Fund represented 20 percent of all funds needed for the green and
             salvage timber programs, but by fiscal year 1996, the amount had risen to
             45 percent.

             The Salvage Sale Fund is not the only fund in which salvage sale timber
             receipts are deposited. Salvage sale receipts not used to recover costs may
             be deposited into (1) the Knutson-Vandenberg (K-V) Fund, where they are
             used to reforest harvested timberlands, and (2) the National Forest Fund,
             where they can be used to make required payments to the states, the
             Roads and Trails Fund, and other obligations. Under federal law, at the
             end of each fiscal year, 25 percent of all moneys received at each national
             forest, including moneys received from salvage sales, is to be paid to the
             state in which the forest is located. These funds are to be expended for
             public roads and schools. Federal law also requires that at the end of the



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                                    fiscal year, 10 percent of all moneys received is to be deposited into the
                                    Roads and Trails Fund. These funds are to be expended for roads and
                                    trails in the forests from which the moneys were derived.

                                    The Forest Service’s guidelines require that a plan be prepared for each
                                    salvage sale or group of small sales. This plan determines the amount of
                                    receipts to be deposited into the Salvage Sale Fund to recover the sale’s
                                    costs. Specifically, the salvage sale plan identifies the sale’s volume, the
                                    sale’s direct and indirect costs, and any additional amount that may be
                                    collected to meet future program needs. The salvage sale plan is the only
                                    document in which these costs are estimated and identified on a
                                    sale-by-sale basis. The Forest Service’s accounting systems do not track
                                    actual sale-by-sale costs.


                                    The history of the Salvage Sale Fund has been one of a growing balance
After a Three-Year                  through fiscal year 1993 and then a declining balance for the next 3 years.
Decline, the Salvage                From the start of fiscal year 1990 through the end of fiscal year 1993, the
Sale Fund’s Balance                 Salvage Sale Fund’s balance more than doubled, from $111 million to a
                                    high of $247 million (see table 1). Declines through fiscal year 1996
Appears to Be                       lowered the balance to $186 million, a drop of 25 percent.
Stabilizing in 1997
Table 1: The Salvage Sale Fund’s
Ending Balance, Fiscal Years 1989   Dollars in millions
Through 1997                                                                                        Unobligated fund
                                    Fiscal                                                            balance at end
                                    year                                                            of the fiscal year
                                    1989                                                                         $111
                                    1990                                                                          162
                                    1991                                                                          182
                                    1992                                                                          223
                                    1993                                                                          247
                                    1994                                                                          229
                                    1995                                                                          210
                                    1996                                                                          186
                                    1997(est.)                                                                    182

                                    The fund’s ending balance declined from fiscal years 1994 through 1996 for
                                    the following reasons:




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•   In fiscal year 1994, $40.2 million of the fund’s balance was considered
    excess to the salvage sale program’s anticipated needs and was used for
    other authorized purposes.

•   During fiscal year 1994, salvage timber offered for sale declined to its
    lowest level in almost 10 years. As a result, less salvage sale receipts were
    collected from these sales in fiscal years 1995 and 1996.

•   In fiscal year 1995, the emergency salvage timber sale program was
    implemented and additional costs were incurred to prepare and administer
    sales that would generate receipts largely in future years.3

•   In fiscal year 1996, as costs for the emergency salvage timber sale program
    continued to rise, the Forest Service deposited $35.6 million originally
    intended for the Salvage Sale Fund into the National Forest Fund to cover
    a shortage in the funds needed to make the payment to the states and
    other obligations.4 In addition, Forest Service officials stated that lowered
    receipts resulted from the volume offered under the emergency salvage
    program because the salvage timber was of lower quality.

    Because the fund’s balance had declined for 3 years and because the
    salvage sale program’s obligations for the last 2 years exceeded deposits to
    the Salvage Sale Fund by more than $30 million, we asked Forest Service
    officials to provide us with information about the agency’s ability to meet
    the salvage sale program’s future needs with available funding levels. They
    told us that the Salvage Sale Fund’s obligations for fiscal year 1997 and
    1998 will be much lower than those in fiscal year 1996 because they expect
    a lower volume of salvage timber to be offered for sale. In addition, the
    Forest Service projects that in fiscal year 1997, about $167 million in
    salvage sale receipts will be deposited into the fund to cover an estimated
    $172 million in obligations. Forest Service officials expect the fund’s fiscal
    year 1997 ending balance to be about $182 million, an amount they
    consider sufficient to meet expected needs of $153 million in fiscal year
    1998.




    3
     Under the emergency salvage program, established by the Congress in 1995, the Forest Service
    offered 4.6 billion board feet of salvage timber that was 1.2 billion board feet more than originally
    proposed by the Forest Service before the emergency program.
    4
    For a detailed discussion of the reasons for the funding shortage, see Forest Service: Unauthorized
    Use of the National Forest Fund (GAO/RCED-97-216, Aug. 29, 1997).



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                                 Several management practices that affect the flow of salvage sale receipts
Several Management               into the fund need to be improved to ensure more consistency in the
Practices Affect How             salvage sale program. Specifically, these practices include how regions
the Fund Is                      and forests (1) establish priorities for distributing salvage sale receipts,
                                 (2) establish estimates of costs to be recovered, (3) review salvage sale
Replenished                      plans for completeness and accuracy, and (4) satisfactorily correct
                                 deficiencies.


Priorities for Distributing      When timber sale receipts were at much higher levels, Forest Service
Salvage Sale Receipts Need       regional and forest-level officials decided how to distribute receipts. As a
Clarification in Policy          result, none of the four forests we visited distributed salvage sale receipts
                                 in the same order or complied with the legislative distribution priorities.
Guidance                         Recently, however, declining timber receipts, combined with concerns
                                 about meeting all required obligations, resulted in headquarters actions to
                                 clarify how receipts should be distributed. It is not yet clear whether these
                                 clarifications will ensure that regions and forests handle the distributions
                                 of receipts in keeping with the different legislative priorities applicable to
                                 salvage and green sale receipts. If the separate legislative priorities are not
                                 applied, salvage sale receipts could be used for other purposes before the
                                 fund is replenished to cover costs.

Legislative Priorities for       The first legislative priority for the distribution of timber sale receipts is
Distributing Salvage Sale        the required 25-percent payment to the states. Even though the 25-percent
Receipts                         requirement applies to receipts from both salvage and green sales, it does
                                 not require that the payment be made from the same source that generated
                                 the receipts. For example, if the receipts from green sales are sufficient,
                                 then they may be used to make the payment to the states that are
                                 attributable to salvage sales.

                                 There is one basic difference in how salvage sale receipts and green sale
                                 receipts are to be handled once the 25-percent requirement is met: Salvage
                                 sale receipts must be deposited into the Salvage Sale Fund until the sale’s
                                 preparation and administration costs are recovered. This deposit must
                                 occur from salvage sale receipts because receipts from the sale of green
                                 timber may not be deposited to the Salvage Sale Fund. Once salvage sale
                                 costs are recovered, any remaining salvage sale receipts may then be
                                 deposited in accordance with the priorities attributable to green sales.

Forest Service Is Developing     Since September 1996, the Forest Service has made several attempts to
Guidance to Clarify Priorities   clarify how timber sale receipts should be distributed. These include
                                 amendments to the manual and the handbook as well as both interim and



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                                    draft guidelines. The Forest Service issued interim guidelines in
                                    January 1997 to provide guidance until a task force developed and
                                    completed national guidelines. This task force issued its first draft in
                                    June 1997, a second draft in August, and a final report on August 28, 1997.
                                    However, none of these documents—the amendments, the interim or draft
                                    guidelines, or the final task force report—clearly illustrated the separate
                                    priorities existing for the distribution of salvage and green timber sale
                                    receipts.

                                    In its report, the task force recommended establishing priority groups to
                                    distribute timber receipts. For example, the first priority group includes
                                    required commitments for the payments to the states, the payment to
                                    roads and trails, the payments for the next year’s planned purchaser-elect
                                    road program,5 and the recovery of required K-V reforestation costs. The
                                    second priority group includes the regional and local needs of the Salvage
                                    Sale Fund and other reforestation activities. However, the priority
                                    groupings do not show that, unlike green sale receipts, deposits to the
                                    Salvage Sale Fund must be made to recover costs before the identified K-V
                                    reforestation requirements are satisfied. If receipts are set aside for other
                                    activities before salvage sale costs are recovered, the amount remaining
                                    may be insufficient to adequately replenish the fund.

Practices Used by Regions and       The task force’s report has been sent to the regions for implementation.
Forests Raise Concern About         How it will be implemented and interpreted remains to be determined. The
Whether Priorities Will Be          four regions we reviewed were all responding in different ways to the
Followed                            interim guidance they had received:

                                •   Officials in the Southern Region stated that because the region has always
                                    met the payments to the states and the other required payments, they saw
                                    no reason to change their established priorities as a result of the interim
                                    guidance. The region and the forests will monitor the situation to ensure
                                    that the National Forest Fund can meet all of its obligations, but the
                                    forests will continue to decide how to distribute timber sale receipts.

                                •   The Pacific Northwest Region and the Northern Region have adopted
                                    regional policies similar to those in the task force’s June draft, except that
                                    the priorities within the first category have been reordered. For example,
                                    required reforestation is listed before the payments to the states.

                                •   The Pacific Southwest Region is following the January interim guidance.

                                    5
                                     Under the National Forest Management Act of 1976, certain small purchasers may elect to have the
                                    Forest Service build the roads necessary to access the timber. These are referred to as
                                    “purchaser-elect” roads.



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                          We reviewed the task force’s final report, including the new guidance,
                          which clearly identifies the 25-percent payment to the states as the first
                          priority and the appropriate source of funding for the Roads and Trails
                          Fund, both of which were not always clear in earlier guidance. However,
                          the relative priority of distributing receipts from salvage sales to the
                          Salvage Sale Fund and to the K-V Fund remains unclear. For example, the
                          guidance states that the Salvage Sale Fund takes priority over the K-V Fund
                          for salvage sale receipts but later states that if insufficient value is
                          received on a salvage sale to fund the needs of both the Salvage Sale Fund
                          and the K-V Fund, then a decision must be made as to which fund will take
                          priority. In addition, the transmittal letter leaves the relative priority
                          between the Salvage Sale Fund and K-V Fund to the discretion of the
                          responsible line officer. These statements could easily lead to continued
                          confusion. Consequently, we remain concerned about whether the final
                          version of the guidance will be clear enough to be correctly interpreted or
                          consistently implemented by those who must use it. Our concern stems in
                          part from the variety of regional practices we found for the interpretation
                          and implementation of the interim and draft guidelines as well as for the
                          other problems discussed below.



Inconsistencies in Cost   A critical step in replenishing the Salvage Sale Fund is accurately
Development               estimating the amounts necessary to reimburse the fund for direct and
                          indirect sale costs. Because the Forest Service does not account for actual
                          costs on a sale-by-sale basis, these costs must be estimated using cost
                          information from previous years. While these estimates are used to
                          determine what can be deposited into the Salvage Sale Fund, the Forest
                          Service has not provided detailed guidance on how these costs should be
                          determined. The method used to estimate costs is left to the regions,
                          which, in turn, often pass this decision along to the individual forests. This
                          practice has led to a variety of cost development methods.

                          At the four forests we reviewed, four different cost development methods
                          were used. For salvage sales awarded in fiscal year 1995, the Clearwater
                          National Forest developed costs using a 3-year average of cost data taken
                          from the accrual-based Timber Sale Program Information and Reporting
                          System;6 the Umatilla National Forest used fiscal year 1992 expenditure
                          data taken from the cash-based Central Accounting System; the Stanislaus
                          National Forest used a 3-year average of the Central Accounting System

                          6
                           The reporting system presents financial and long-term economic information for each national forest
                          timber sale program.



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                             expenditure data; and the Homochitto National Forest developed its own
                             cost estimates on the basis of its experience.

                             The Forest Service does not account for costs on a sale-by-sale basis, and
                             as a result, the method chosen to estimate these costs can have a
                             substantial impact on the amount to be deposited in the fund. As the size
                             of the salvage sale program changes, the costs associated with it rise and
                             fall. Thus, the costs selected and the period chosen can have a significant
                             effect on the amount identified as needed to replenish the fund. For
                             example, if the Umatilla National Forest had used the 3-year average
                             method utilized by the Stanislaus National Forest, its identified costs
                             would have been $1.3 million instead of the $367,223 actually claimed. By
                             selecting a method that incorrectly estimates the program’s cost, a forest
                             runs the risk of not setting aside the amount necessary to finance the
                             program in the future. (For a table showing the total costs for the sales
                             examined in the four forests we reviewed, see app. II.)


Inadequate Review of         Forests need to accurately prepare salvage sale plans because these
Salvage Sale Plans Permits   documents serve as the basis for depositing available receipts to the
Errors                       Salvage Sale Fund. At the four forests we reviewed, however, we found
                             numerous errors. For example, (1) regional and headquarters overhead
                             had not been included in the indirect costs, (2) overhead was calculated
                             on overhead, (3) incorrect volumes were listed, (4) excessive allowable
                             surcharges were calculated, and (5) basic computational errors were
                             made. These errors and omissions point to a lack of adequate review of the
                             salvage sale plans by managers at the forest and regional levels.

                             The effect of these errors varied, understating costs in some places and
                             overstating them in others. For example, of the 16 sales reviewed at the
                             Umatilla National Forest, 6 overstated indirect costs and 7 understated
                             them. The overall impact was an overstatement of about $21,000. At the
                             Stanislaus National Forest, the program’s future needs were based on
                             150 percent of direct and indirect costs instead of the 50 percent permitted
                             by the Forest Service’s handbook; this calculation overstated the amounts
                             to be collected for the nine sales reviewed by almost $150,000.
                             Furthermore, this incorrect calculation method has been in effect since at
                             least 1991.

                             We also found instances in which salvage sale plans were never prepared.
                             At the Homochitto National Forest, 3 of the 19 sales we reviewed had no
                             plan. Without a plan, there is no basis for distributing any receipts to the



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                                      Salvage Sale Fund. This omission at the Homochitto National Forest cost
                                      the Salvage Sale Fund about $19,000 in deposits.


Monitoring Efforts Identify           Over the past 5 years, both the U.S. Department of Agriculture’s Office of
Problems, but Resolution              Inspector General and various regional and headquarters teams within the
Requires Follow-Up                    Forest Service have reviewed the salvage sale program. These reviews
                                      have reported many management weaknesses similar to those we
                                      identified. However, many of these management weaknesses persist
                                      because the Forest Service has not communicated the results of these
                                      reviews to all regions or adequately followed up to ensure that corrective
                                      actions are taken.

Responses to Inspector                In 1992, the Office of Inspector General audited three Forest Service
General’s Findings Insufficient       regions to determine whether the salvage sale program complied with the
to Ensure Corrective Action           applicable laws and regulations and whether collections and receipts were
                                      appropriate. Among other things, the Inspector General found that

                                  •   the guidelines and monitoring of the salvage sale program were
                                      inadequate,
                                  •   improvements were needed in the management and in the collection of
                                      salvage sale funds, and
                                  •   controls over expenditures charged to the salvage sale program were
                                      inadequate.

                                      To correct these problems, the Inspector General recommended that the
                                      Forest Service provide detailed instructions to its field offices on the
                                      management of the salvage sale program and that the program be
                                      monitored on a regular basis. The Inspector General also recommended
                                      that detailed and specific instructions be established for the preparation of
                                      salvage sale plans in addressing allowable direct costs, the calculation of
                                      indirect costs, and permissible excess collections.

                                      In response to these recommendations, the Forest Service updated and
                                      clarified its manual and handbook and agreed to schedule additional
                                      reviews of its salvage sale program. However, at the four forests and
                                      regions that we reviewed, neither the guidance nor the monitoring is
                                      specific enough to address the problems we found. For example, while the
                                      guidance requires that estimated costs be included in salvage sale plans, it
                                      does not state how estimates should be calculated. The guidance also
                                      requires that costs be updated, but it does not state how or on what basis.
                                      The monitoring system put in place does not include provisions requiring



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                                      follow-up to ensure that problems are corrected or that the weaknesses,
                                      problems, or best practices identified in one office are communicated
                                      throughout the agency so that changes can be made everywhere they are
                                      needed.

Problems Identified in Internal       The Forest Service conducts its own reviews of the salvage sale program
Reviews Often Remain                  by annually selecting one or two regional offices for in-depth analysis.
Uncorrected                           During these reviews, headquarters and regional officials visit selected
                                      forests and examine guidelines, program direction, and accounting
                                      procedures. However, the problems or best practices identified during
                                      these reviews are not communicated throughout the agency so that
                                      changes can be made where needed. Consequently, the problems
                                      identified during a 1992 review were also identified as problems 3 years
                                      later in another region.

                                      Since 1992, each region that we visited had been selected for review. The
                                      Forest Service review teams found many of the same problems we
                                      identified, including

                                  •   incorrect calculation and updating of direct and indirect costs,
                                  •   inconsistent priorities in distributing salvage sale funds,
                                  •   failure to update salvage sale plans, and
                                  •   failure to collect the correct amount for the program’s future needs.

                                      Action plans were prepared to address the problems uncovered by the
                                      reviews, but the Forest Service did not share this information with other
                                      regions or do the follow-up necessary to ensure that the weaknesses were
                                      actually corrected. For example, when we asked Southern Region officials
                                      about the status of the action items in their September 1995 review, we
                                      were told that many of the items in the review that were targeted for
                                      completion by June 1996 were still open in June 1997. Headquarters
                                      officials said that because of limited staff, they seldom follow up to ensure
                                      that the problems are corrected, and they also do not report the results of
                                      their reviews to other regions. They said that they rely on regional officials
                                      to report on the status of corrective actions and that they would follow up
                                      on specific weaknesses during their next review.

Task Force’s Efforts Carry No         The Forest Service has established two task forces whose work may help
Assurance of Effective                improve some of the management practices affecting Salvage Sale Fund
Implementation                        replenishment. The first task force, dealing with funding priorities, has
                                      already been discussed. The other task force is developing directions for
                                      calculating indirect costs, improving internal management controls over



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              indirect costs, and identifying ways to best manage the K-V Fund. Forest
              Service officials expect, however, that some of these findings will be
              applicable to the management of the Salvage Sale Fund. Forest Service
              officials stated that the issuance date for the task force’s report is
              uncertain at this time.

              Over the years, the Forest Service has often used task forces to identify
              problems and recommend solutions. The results of these task forces’
              studies, like those of activity reviews, are often thorough and constructive,
              and they could do much to correct identified problems if the
              recommendations were communicated and implemented. As we have
              pointed out, however, regions and forests do not always carry out
              suggestions or recommendations for change.

              As we stated in our testimony of July 31, 1997,7 the highly decentralized
              management structure of the Forest Service gives managers considerable
              autonomy and discretion for interpreting and applying the agency’s
              policies and directions. As a result, it will be a significant challenge for the
              Forest Service to ensure that the recommendations made by the two task
              forces will be fully and consistently implemented throughout the agency.


              The actions taken by the Forest Service in the past year to improve the
Conclusions   management of the Salvage Sale Fund show a willingness to correct
              identified weaknesses. Task forces have completed the new guidance for
              the distribution of timber sale receipts and are identifying ways in which
              the management of the Salvage Sale Fund can be improved. Substantial
              progress has been made. The guidance on priorities, however, needs
              additional clarification to ensure compliance with the legislative priorities
              for the distribution of salvage sale receipts. In addition, concerns about
              management practices affecting fund replenishment still need to be
              resolved and corrective action implemented. The need for consistent
              action requires that the guidance include the identification of appropriate
              data sources, cost calculation methods, and specific monitoring and
              feedback activities. In addition, the correction of individual mistakes or
              errors may not result in solving systemic problems. When reviews identify
              best practices or mistakes, some mechanism is needed to communicate
              this information throughout the agency so that all locations benefit.




              7
               The Results Act: Observations on the Forest Service’s May 1997 Draft Plan (GAO/T-RCED-97-223,
              July 31, 1997).



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                         To help ensure that appropriate and consistent practices are in place to
Recommendations          manage the Salvage Sale Fund, we recommend that the Secretary of
                         Agriculture direct the Chief of the Forest Service to take the following
                         actions:

                     •   Clarify the agency’s guidance to emphasize that the Salvage Sale Fund
                         takes priority over the K-V Fund for the distribution of salvage sale receipts
                         until preparation and administration costs have been recovered.

                     •   Establish national guidance that identifies acceptable data sources and
                         methods for calculating the cost estimates that determine the fund’s
                         replenishment requirements.

                     •   Establish national procedures to ensure that salvage sale plans will be
                         adequately reviewed to detect errors.

                     •   Develop national follow-up procedures to ensure that errors, problems, or
                         best practices found in one location are communicated, corrected, or
                         implemented everywhere.


                         We provided a draft of this report to the Forest Service for review and
Agency Comments          comment. The Forest Service said that the report accurately and fairly
                         presented the information about the fund’s balance and the management
                         practices affecting the replenishment of the fund. The Forest Service
                         agreed with the recommendations for corrective action.


                         To respond to the assignment objectives, we reviewed pertinent
Objectives, Scope,       legislation, the agency’s guidance, the agency’s financial records,
and Methodology          monitoring reports, and selected salvage sales. We spoke with
                         representatives from Forest Service headquarters, four regional offices,
                         and four national forest offices to discuss how the Forest Service manages
                         the Salvage Sale Fund. We conducted our work from September 1996
                         through September 1997 in accordance with generally accepted
                         government auditing standards. Appendix I provides a detailed discussion
                         of our scope and methodology.


                         We are sending copies of this report to the Secretary of Agriculture, the
                         Chief of the Forest Service, the Director, Office of Management and




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Budget, and appropriate congressional committees. We will also make
copies available to others upon request.

If you or your staff have any questions about this report, please call me at
(206) 287-4810. Major contributors to this report are listed in appendix III.

Sincerely yours,




James K. Meissner
Associate Director, Energy,
  Resources, and Science Issues




Page 13                         GAO/RCED-97-228 Forest Service’s Salvage Sale Fund
Contents



Letter                                                                                                1


Appendix I                                                                                           16

Objectives, Scope,
and Methodology
Appendix II                                                                                          19

Costs of Sales at the
Four Forests
Reviewed
Appendix III                                                                                         20

Major Contributors to
This Report
Tables                  Table 1: The Salvage Sale Fund’s Ending Balance, Fiscal Years                 3
                          1989 Through 1997
                        Table I.1: Forests, Location and Regions                                     17




                        Abbreviations

                        K -V       Knutson-Vandenberg


                        Page 14                       GAO/RCED-97-228 Forest Service’s Salvage Sale Fund
Page 15   GAO/RCED-97-228 Forest Service’s Salvage Sale Fund
Appendix I

Objectives, Scope, and Methodology


              Sales of salvage timber represented nearly half of all timber offered for
              sale in fiscal year 1996. Because of this increase in salvage sales, the
              Ranking Minority Member, Subcommittee on Interior and Related
              Agencies, House Committee on Appropriations, asked us to provide
              information on the status of the fund’s balance and the management
              practices used by the Forest Service to replenish the Salvage Sale Fund.
              We agreed to provide this information in two phases. In phase one, we
              provided information on the uses and status of the fund and compared the
              timber sales receipts deposited in the Salvage Sale Fund to the outlays
              from the fund on a national, regional, and forest-level basis for fiscal years
              1991 through 1995.8 The second phase provides a more in-depth
              assessment of the current status of the fund’s balance and the adequacy of
              the Forest Service’s efforts to replenish and manage the fund.

              To obtain information on the current status of the Salvage Sale Fund’s
              balance, we requested information on fiscal year 1996 receipts,
              expenditures, and the fund’s ending balance and reviewed the Forest
              Service’s fiscal year 1997 projections for salvage sale deposits and
              obligations. In addition, we spoke with the Department of Agriculture’s
              Office of General Counsel to establish the legislative distribution priorities
              for salvage sale receipts.

              To obtain information on the adequacy of management practices affecting
              the replenishment of the fund, we spoke with agency officials at all
              organizational levels. We also reviewed the agency’s guidance, financial
              records, and monitoring reports along with applicable laws and their
              legislative history. Specifically, we interviewed representatives from the
              Forest Management, Budgeting, and Financial Management offices at
              Forest Service headquarters, four regional offices, and four forest offices.

              The four regions we selected were chosen because they had large salvage
              sale programs, provided wide geographic coverage, and had a variety of
              salvage conditions ranging from fires to insect infestation. Within each
              region, one forest was selected for detailed review. Two of the
              forests—the Clearwater and Stanislaus—were chosen because they were
              included in our recent review of the emergency salvage sale program.9 We
              selected the Homochitto National Forest, within the National Forests in
              Mississippi, because of the extensive Southern Pine Beetle epidemic in


              8
               Salvage Sale Fund’s Deposits and Outlays (GAO/RCED-96-240R, Aug. 22, 1996).
              9
              Emergency Salvage Sale Program: Forest Service Met Its Target, but More Timber Could Have Been
              Offered for Sale (GAO/RCED-97-53, Feb. 24, 1997).



              Page 16                                  GAO/RCED-97-228 Forest Service’s Salvage Sale Fund
                                   Appendix I
                                   Objectives, Scope, and Methodology




                                   fiscal year 1995 and the resulting large salvage sale program.10 Finally, we
                                   selected the Umatilla National Forest in Oregon because it had a large
                                   salvage sale program and had not been reviewed by GAO in recent years.
                                   Table I.1 provides the forests’ names, locations, and regions.

Table I.1: Forests, Location and
Regions                            Forest                              Location                          Region
                                   Clearwater                          Orofino, Idaho                    Northern
                                                                                                         Missoula, MT
                                   Homochitto                          Meadville, Mississippi            Southern
                                                                                                         Atlanta, GA
                                   National Forests                    Jackson, Mississippi              Southern
                                   in Mississippi                                                        Atlanta, GA
                                   Stanislaus                          Sonora, California                Pacific Southwest
                                                                                                         San Francisco, CA
                                   Umatilla                            Pendleton, Oregon                 Pacific Northwest
                                                                                                         Portland, OR

                                   We examined the Forest Service’s handbooks and manuals for guidance
                                   on how to develop direct and indirect salvage sale cost rates, distribute
                                   salvage sales receipts, develop salvage sale program budgets, and prepare
                                   individual salvage sale plans. To ascertain how this guidance was used, we
                                   performed a detailed review of the salvage sales awarded at the four
                                   forests in fiscal year 1995. Fiscal year 1995 was selected because most
                                   sales were prepared before the major impact of the emergency salvage
                                   sale program and because enough time had elapsed for many of the sales
                                   to be completed. For the Clearwater, Stanislaus, and Umatilla National
                                   Forests, we selected all salvage sales awarded in fiscal year 1995. Because
                                   of the extensive beetle epidemic in 1995, the Homochitto awarded more
                                   than 800 timber sale contracts and permits to sell the timber volume
                                   necessary to accomplish its salvage sale program. Because we were
                                   testing the system rather than extrapolating our findings to the whole, we
                                   randomly selected 13 contracts and 6 permits for detailed review.

                                   Our review of the salvage sale files also included examining pertinent data
                                   on sales volumes, the salvage sales’ collection plans, the sale areas’
                                   improvement plans, and financial documents showing how the receipts
                                   were distributed among the various Forest Service funds. Because the
                                   Forest Service does not have a sale-by-sale accounting system, we used
                                   data on forest-level obligations as the basis for determining the charges to
                                   the Salvage Sale Fund. We did not perform a financial audit of these data,


                                   10
                                     While the Homochitto National Forest is a proclaimed national forest, for administrative purposes it
                                   is considered a ranger district within the National Forests in Mississippi.



                                   Page 17                                    GAO/RCED-97-228 Forest Service’s Salvage Sale Fund
Appendix I
Objectives, Scope, and Methodology




nor did we independently verify or test the reliability of the deposits, the
fund’s balance, or other Forest Service-supplied data. However, the Forest
Service’s financial statement audit reports for fiscal years 1992 through
1995 revealed significant internal control weaknesses in various
accounting subsystems that resulted in unreliable accounting data,
including timber-related data. Even with these weaknesses, we used the
data because they were the only data available.

We reviewed the agency-conducted activity reviews completed since fiscal
year 1992 to determine whether the deficiencies we noted were similar to
those identified internally. We then determined whether corrective action
plans were developed and implemented. Finally, we reviewed the
Department of Agriculture’s Office of Inspector General’s report issued in
1993 on the Forest Service’s Salvage Sale Fund and reviewed the
documents provided by the Inspector General that explain the corrective
actions taken by the Forest Service in response to the Inspector General’s
recommendations.

We conducted our review from September 1996 through September 1997
in accordance with generally accepted government auditing standards.




Page 18                              GAO/RCED-97-228 Forest Service’s Salvage Sale Fund
Appendix II

Costs of Sales at the Four Forests Reviewed



               Volumes in thousands of board feet
                                                                            National Forest
               Cost                                      Clearwater Stanislaus            Umatilla Homochitto
               category                                    (5 sales) (13 sales)a        (16 sales) (16 sales)b
               Sales preparation                             $86,192        $96,700      $173,379           $43,514
               Sales administration                           12,702         56,784         43,025           22,237
               Road costs                                     46,670               0              0               0
               Indirect costs                                 40,315         43,741        150,804           28,882
               Total                                       $185,879       $197,225       $367,208           $94,633
               Volume offered                                  1,199          3,065           5,499            3,430
               a
                We reviewed one additional sale, but the forest had not prepared a salvage sale plan as
               required. Therefore, the estimated costs associated with this sale could not be determined
               because the Forest Service does not maintain a sale-by-sale accounting system.
               b
                We reviewed three additional sales, but the forest had not prepared a salvage sale plan as
               required. Therefore, the estimated costs associated with these sales could not be determined.




               Page 19                                   GAO/RCED-97-228 Forest Service’s Salvage Sale Fund
Appendix III

Major Contributors to This Report


                        Jill L. Berman
Energy, Resources,      Linda L. Harmon
and Science Issues      John P. Murphy, Jr.
                        Victor S. Rezendes
                        Stanley G. Stenersen
                        Hugo W. Wolter


                        Alan R. Kasdan
Office of the General
Counsel




(140544)                Page 20                GAO/RCED-97-228 Forest Service’s Salvage Sale Fund
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